Cuba Reaches Debt Agreement with More Bilateral Creditors

Spain and Cuba signed an agreement earlier this month to restructure Cuban debt, according to the Spanish ministry of economy.

The ministry noted that medium and long term debts owed by Cuba totals 2.44 billion euros (US$2.81 billion) by the end of last October, and none of these amounts have been repaid. The agreements between Spain and Cuba stem from a deal reached in December 2015, with the Paris Club ad hoc group and bilateral negotiations between the two countries.

In May 2016 acting Spanish Minister of Economy Luis de Guindos, and Ricardo Cabrises, the vice president of the council of ministers of Cuba, signed and agreement to resolving Cuba’s long-term debt.

During a visit by De Guindos to Cuba last November, the two countries agreed to restructure Cuban short term debt totaling 201.5 million euros (US$231.7 million).

In a related event, Southern Pulse reports that Cuban and Australian officials met in Havana on May 19th for bilateral negotiations over Cuba’s debt.

Cuba’s Other Debt

Cuba defaulted on all its debts in the 1980s and is estimated to have restructured about $50 billion in old debt in the past few years. The country’s pace of resolution is gathering steam under highly favorable repayment terms offered by its creditors.

A country’s debt is made up of official debts it has with other countries (bilateral) and commercial debts with banks and other private creditors. When a country defaults, creditors have traditionally organized themselves into two groups based on the type of debt. Official bilateral creditors, called “Paris Club” creditors, often organize themselves into a non-binding rescheduling framework. Each member negotiates the particulars bilaterally with the debtor in question, and the honor system compels the members to abide by the club’s terms. Commercial creditors often organize into a “London Club.”

Restructuring a country’s burdensome debt obligations (or “workouts”) is a common occurrence. As of 2012, worldwide sovereign debt restructurings have been a pervasive method of resolution, amounting to more than 600 cases in 95 countries. Of these, 186 debt exchanges were with private creditors while 447 agreements restructured bilateral debt with the Paris Club structure.

Cuba is no exception. Last year, the country concluded a favorable debt restructuring with most of its Paris Club creditors (representing 14 of its 19 bilateral creditors). France is the largest single creditor. The US was not part of the Paris Club creditors included in this negotiation.

In the Paris Club deal, creditors forgave $8.5 billion of Cuba’s $11.1 billion bilateral debt. The deal covers official debt defaulted on through 1986, plus interest, service charges and penalties. All the debts were denominated in euros and other currencies.

The Paris Club calculated Cuba’s total debt to its members at $11.1 billion, which is less than the previously reported $15 billion. Interest is forgiven through 2020, and after that interest is just 1.5% of the total debt still due.

Subsequent to the Paris Club deal, France expanded its arrangements with the remaining balance of its Cuban debt. Half of the outstanding arrears owed to France will be converted into a 212 million euro joint Cuba-French fund to finance projects in Cuba.

In 2014, Russia’s parliament ratified an agreement whereby Moscow wrote off 90% of Cuba’s $35.2 billion debt stemming from loans made by the Soviet Union. The agreement stipulates that Cuba must pay back $3.2 billion over a 10 year period in exchange for Russia forgiving the remaining $32 billion.

Last month, visiting British foreign minister Philip Hammond reached an agreement on restructuring its Cuban debt. The agreement deals with Cuba’s mid and long-term debt with Britain, according to a Cuban government statement. Details were not disclosed, but a statement reads that the agreement, “should contribute to the development of economic, commercial and financial relations between the two nations.” This language suggests that Britain may convert its debt into developmental financing like France’s recent debt conversion.

Finally, in March 2016, reports indicated that Cuba’s commercial creditors (its London Club) have hired Rodrigo Olivares-Caminal, a professor at Queen Mary University of London, to help organize an effort to negotiate settlement terms for Cuba’s defaulted private sector claims. This typically does not happen unless the debtor country has given an indication of a willingness to talk.

Cuba Reaches Debt Agreement with More Bilateral Creditors was last modified: May 30th, 2016 by Cuba Journal